使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Good morning.
My name is Holly and I will be your conference operator today.
At this time we would like to welcome everyone to the Royal Caribbean Cruises Limited 2013 fourth-quarter earnings conference call.
(Operator Instructions)
I would now like to turn today's conference over to Jason Liberty.
Please go ahead, sir.
Jason Liberty - SVP, CFO
Good morning.
I would like to thank you for joining us today for our fourth-quarter earnings call.
Joining me here in Miami are Richard Fain, our Chairman and Chief Executive Officer; Brian Rice, our Vice Chairman; Adam Goldstein, President and CEO of Royal Caribbean International; Michael Bayley, President and CEO of Celebrity Cruises; and Liz Oates, our Director of Strategic Planning.
During this call we will be referring to a few slides which we have posted on our investor website, www.RCLinvestor.com.
Before we get started I would like to refer you to our notice about forward-looking statements, which is on our first slide.
During this call we will be making comments that are forward-looking.
These statements do not guarantee future performance and do involve risk and uncertainty.
Examples are described in our SEC filings and other disclosures.
Also, we will be discussing certain non-GAAP financial measures which are adjusted as defined [both] by -- a reconciliation of these items can be found on our website.
Richard will begin by providing a strategic overview of the business.
I will follow up with a recap of our fourth-quarter results and will provide an update on our business environment.
Adam will provide an update on Quantum of the Seas, as well as our revitalization efforts.
Michael will provide an update on onboard revenue and the trade.
And then I will walk you through our outlook for the year.
We will then open up the call for your questions.
Richard?
Richard Fain - Chairman, CEO
Thanks, Jason, and good morning, everyone.
As always we welcome this opportunity to provide a little more color on our results for the last year and our perspective on the year ahead of us.
Before I start, however, I think I should make note of a significant occasion.
This is Brian Rice's last earnings call.
Brian has been an amazing partner over the last two decades.
His impact on our Company and indeed on the industry has been remarkable.
It is really not an exaggeration to call him the father of advanced revenue management for the cruise industry, and he has helped shepherd Royal Caribbean through some very turbulent times.
Brian will be sorely missed; but he has crowned his career with a transition process that should be in the textbooks.
I know everyone here joins me in thanking Brian for his leadership and for his friendship.
Brian has agreed to continue to help us on an ad hoc basis; but it won't be the same without him here every day.
Returning to the financials, it has been an interesting time in the cruise industry, and I don't have to tell you how pleased we are to see us emerging from it.
Perhaps the best indicator of our strength as a Company and the strength of our industry is the fact that we ended up 2013 spot on the guidance we gave at the beginning of last year.
At that time we provided guidance of $2.30 to $2.50.
Then, none of us imagined that the industry would be subjected to so much negative coverage.
That much bad news would threaten any industry.
But our team worked hard to overcome the challenges, and our final result was precisely -- that is amazingly accurate -- at the midpoint of that early forecast.
It is a remarkable feat, and I would thank all of the Royal Caribbean team who worked so hard to accomplish it.
The big benefit on the revenue side came in two areas.
Firstly, onboard revenue really excelled.
We have invested heavily in ship revitalizations and other enhancements, and these are obviously paying off.
The other pleasant surprise was the amount of late bookings that we achieved.
It provides a good omen for the future when we are able to top up the last little bits on a vessel close to the sailing date.
This is usually a sign of a stronger general demand, and it certainly reinforces our optimism about the future.
As you know, a new year doesn't start with a clean slate.
We normally begin every year with about half of our capacity already sold.
This tends to buttress yields during difficult times, but holds them back in good times like these.
Thus the impact of the 2013 challenges is holding back the kind of yield increases we would otherwise be enjoying for 2014.
The net result: we expect a year-over-year increase in yields of between 2% and 3%.
The Caribbean, of course, is weaker due to two factors.
Firstly, it is the areas hardest hit by the media storm of 2013.
Secondly, we have a large capacity increase here for both the Company and the industry of 13%.
I would also like to take this opportunity to talk about the other steps we are taking with respect to our principal focus: improving our rates of return.
For this purpose I will talk a little more about our brands and asset classes than we usually do when we focus on geographic markets.
Fortunately for us, our newer ships have proven to be remarkably popular amongst the traveling public and amongst travel agents.
Our Oasis class ships for Royal Caribbean International and our Solstice class ships for Celebrity are simply the best in their competitive set.
They are proving to be not only popular but reliable projects throughout this period.
I remain in awe of our newbuilding teams and our management teams who have created such powerful ships.
Looking forward, our current focus is to take advantage of this amazing hardware, particularly these newer ships, while at the same time divesting or fixing the returns from underperforming assets.
Looking at the opportunities by brand, I will start with the Royal Caribbean International, which has continued to be our strongest brand even in this period.
Of course, this is where we have made our greatest investments; and because of its size and its exceptional hardware, this is where we have some of our greatest opportunity.
Celebrity has been undergoing a dramatic shift in its operations and in its marketing.
And this shift really seems to be working very well indeed.
Its yields have shown strong growth and its costs significant declines.
We are therefore expecting Celebrity to be a significant contributor to the 2014 improvements in investment returns.
Azamara has faced an uphill struggle due to market forces, but it has established an enviable reputation for delivering AzAmazing vacations.
As a result, Azamara looks set to achieve some of the highest yield improvements we have ever enjoyed in a single year.
But our biggest transformational focus is on the older vessels and on the performance of Pullmantur, our Spanish cruise operator.
Here we are making the greatest strategic changes and here we expect the greatest relative benefit.
The most visible changes involve the shift to having a Latin American headquarters and the recent sale of Pullmantur's non-cruise businesses.
By increasing Pullmantur's focus on Latin America and by eliminating the need to focus on its tour operations, we believe we are setting the stage for transformational improvements.
Of course, the Spanish market remains key to Pullmantur's long-term success.
But the immediate growth in Latin America should be significant.
We do expect this transformation to take some time and for 2014, the year will be a transitional year.
We expect the biggest benefits of Pullmantur's changes to occur in 2015 and beyond.
In summary, we expect the big improvements this year to come from exploiting our superior hardware and improving the marketing of our already-successful brands.
We also see improvement coming in the results of our underperforming assets.
In particular, we are setting the stage for a significant bump in the performance of Pullmantur.
But I would note again that we are not anticipating that bump to happen overnight.
Taken all together, we are projecting almost a 40% increase in profitability in 2014.
And that is in a year with essentially no capacity increase.
This is a real testament to the strength of our brands and the people that manage them.
But talking about no capacity in 2014 reminds me to comment on what I believe will be one of the most impactful events this year, and that is the delivery of Quantum of the Seas.
Unfortunately, she won't deliver until near the end of the year; but the buzz is already very strong and we haven't even finish disclosing all of her sexy features.
The introductory video was an absolute home run, but we have a few more aspects of the ship's design that we will be rolling out over the coming months.
We believe these innovations will excite the public as much as the ones we've already disclosed.
This ship will be another game-changer for our Company and, indeed, for our industry.
Interestingly, we are experiencing a phenomenon for Quantum similar to what we saw prior to the delivery of Oasis.
People are speculating about our innovations, and they are doing so in terms of improved or expanded features from our existing ships.
There is a natural tendency to start with the innovative features people already know and assume that the new ships builds on those features.
In fact, I am happy to say that they will be surprised.
As we have done with our radically new designs in the past, Quantum is a totally new type of vessel.
She will deliver a fantastic new experience in a way that is novel and exciting.
Truly she is a quantum leap, and with her new features and her energy efficiencies, she will generate a fantastic return on our investment.
With that, I am pleased to turn it back to Jason, who will give you more detail on the figures.
Jason?
Jason Liberty - SVP, CFO
Thank you, Richard.
Before we get into our operating results I would like to mention that, as expected and communicated on our previous calls, we have incurred a restructuring-related cost associated with our various profitability initiatives.
These totaled $43 million in the fourth quarter and $56.9 million for the full year.
These changes relate mainly to the pending sale of Pullmantur's non-core businesses and the previously noted restructuring and consolidation of parts of our global operation.
As we previously mentioned, accounting rules dictate the timing of when we take these charges; so we expect to incur an additional $23 million in 2014.
This will all be detailed in our 10-K, which will be filed in late February.
Our profitability improvement initiative is an ongoing program that will continue, but we do not anticipate any additional restructuring charges beyond what has already been identified.
Now I would like to talk to you about our operating results.
So that you can better understand our operating performance relative to our prior guidance, I have included Pullmantur's non-core businesses so that they're in the 2013 numbers.
Unless I state differently, all metrics will be on a constant currency basis.
Now let's look at our fourth-quarter results, which I have summarized on slide 2. For the quarter, we have generated net income of $0.23 per share, which exceeded the top end of the range we provided on October call by $0.03.
Net revenue yields increased 3.8% for the quarter, which was significantly better than our guidance of an increase of 2% to 3%.
Continued strength on European and Asian sailing, coupled with another stellar onboard revenue performance, drove the majority of the improvement and more than offset a slight decline in Caribbean yield.
Net cruise costs, including fuel, were up 1.8% for the quarter, which was in line with the guidance.
I will now discuss full-year results which we have summarized on slide 3. Yields increased 3.2%.
Yields were flat in the Caribbean and were up about 8% in Europe.
We also generated yield growth from itineraries in Asia despite significant capacity growth and summer itinerary modifications, resulting from the ongoing dispute between China and Japan.
Benefits from our ship revitalization program, packaging initiatives, as well as shore excursion enhancements drove a 7.6% improvement in onboard revenue.
Net cruise costs including fuel increased 1.8%, which was in line with prior guidance and 70 basis points better than the midpoint of our January guidance.
Adjusted earnings per share came in at $2.40, which was spot on the midpoint of our January guidance.
Now I would like to update you on what we are seeing in the demand environment.
Booking activity during the fourth quarter was consistent with historical levels.
As you can see on slide 4, we entered 2014 and the very strong book position, with 5% more revenue on the books as compared to same time last year.
The first week of WAVE was somewhat softer than last year, as much of North America was weathering the polar vortex.
While a cold winter typically means increased demand for Caribbean sailing, the severity of the weather kept people indoors and clearly resulted in lower bookings for several days.
Demand was softest out of the Northeast and Midwest, but stronger in the warmer markets.
Excluding the first week, demand has been more typical of WAVE levels.
We have made a number of deployment changes this year, so I will walk you through the trends we are experiencing by product, which we have summarized on slide 5. Our Caribbean capacity in 2014 will be up 13% from 2013, also represent 40% of our inventory, similar to 2010 levels.
Currently our book load factors and rates for the Caribbean are lower than same time last year, and we expect yields for 2014 to be down for the Caribbean by low single digits.
In the Caribbean, we are generally seeing demand and pricing hold up better for long and more expensive itineraries than we are for shorter itineraries.
Europe will account for 22% of our capacity this year, which is a 17% reduction from last year.
As of today, book load factors and APDs are significantly higher than same time last year, and we are expecting another year of significant yield improvement in Europe and expect yields to surpass pre-recessionary levels.
Asia-Pacific will account for 12% of our capacity.
Both our book load factors and APDs remain ahead of same time last year in spite of a 12% increase in capacity.
We expect yields to be up nicely for our Asia-Pacific itinerary.
The remaining 20% of our inventory is spread across a number of itineraries.
In aggregate, these itineraries our booked ahead same time last year on both rate and volume, and we expect yields to be slightly up.
In aggregate, our APDs are up in all four quarters.
Load factors are flat in the first quarter but are up in Q2, Q3, and Q4.
Capacity is expected to be up 1.7% for the year.
This is driven mainly by normal changes like drydocking.
Now I would like to ask Adam to give you an update on Quantum and the revitalization program, and Michael to provide an update on onboard and the trade.
Adam?
Adam Goldstein - President, CEO
Thank you, Jason.
Having worked with Brian as Richard has for over 20 years, I would like to add my appreciation and wish Brian all the best in the future.
Richard and Jason have summarized the current status of the WAVE booking period, and I will not add further commentary other than to say we are highly focused on leveraging our strengths in branding, distribution, and product delivery both in the Caribbean and also around the globe.
Richard briefly mentioned this year's arrival of Quantum of the Seas.
While Quantum was meant to be my topic for today, his irrepressible enthusiasm is understandable.
For all of us who collectively undertook this daunting task of creating a class of ship that would follow Oasis class, we are more than anxious to take delivery and begin operation of Quantum of the Seas.
As the Quantum class project has unfolded, with the exception of sheer size we have thought to push the boundaries of what can make a 21st-century cruise ship both more effective for our guests and more efficient for our shareholders.
We have revealed the principal physical amenities of the ship: Two70, the SeaPlex, the North Star, and RipCord by iFLY.
All four of those wild features are unprecedented on the water.
In addition we have announced we will perform the hit musical Mamma Mia for our guests.
We have not yet said much of anything about our culinary offering, our other entertainment options, or our technological capabilities.
We are equally excited about these elements of our product delivery.
We are also enthusiastically looking forward to the fuel efficiency of Quantum class ships and to a variety of back-of-the-house efficiencies that will contribute to the ship's return on investment.
We wish we could announce that the ship will be ready 10 months early, but the reality is we will take delivery of Quantum as scheduled in October, and introduce her in Southhampton, England, and then in the New York area in October and November.
We are very pleased with the progress of the ship's construction in Germany, and with the current load factor and APDs at this stage of the booking curve.
Moving now to the topic of revenue management, last fall we significantly upgraded the manner in which we present our prices and promotion to the market.
We have increased the visibility, logic, and value of our pricing to consumers and travel agents.
For example, there is greater visibility of our offers in our automated booking tools and on our brand website.
Also, promotional values are applied instantly on guests' reservations, rather than requiring subsequent manual processing.
Simultaneously, we have enhanced the back-of-house efficiency of our pricing administration.
While some of the benefits of this new approach are hard to measure in the short term, we have already seen measurable and significant revenue benefits in certain respects.
Before I turn this over to Michael, I will give a quick update on a topic I mentioned on the last call, which is the revitalization of our five Voyager class ships.
The first to undergo revitalization is Navigator of the Seas.
She is currently in the Bahamas for the project, and we are expecting a completely successful and exciting result on her scheduled return to her Galveston, Texas, home.
As a result of the project, Navigator will have more stateroom, more suite and stateroom types, and a refresh of existing staterooms and suites.
She will have multiple new specialty restaurants, a FlowRider surf machine, new shops and bars, and multiple technology enhancements including the industry's first virtual balcony.
We expect to revitalize the other four Voyager class ships over the next several years.
Michael?
Michael Bayley - President, CEO
Thank you, Adam.
Good morning, everyone.
As Jason mentioned, our onboard revenue performance in 2013 has been particularly strong, with constant currency yields up 7.6 for the full year and 8% for the fourth quarter.
We have now seen year-over-year onboard revenue growth for eight consecutive quarters.
As we look forward into 2014, we feel optimistic about the continuation of this strong performance.
As you know, we have invested in our onboard revenue programs for a number of years, and these investments are generating healthy return.
We have added over 40 specialty restaurants over the past four years and have continued to invest in the refreshing and updating of our casino technology, and on certain vessels we have upgraded our casino footprint in response to demand from the source market.
We continue to invest in our pre-cruise capabilities, and today you can book our shore excursions, specialty dining, spa appointments, beverage packages, and packages generally.
And over the past 12 months we have significantly rationalized our tour offering and improved the quality of our tour product.
At Celebrity Cruises, for example, we added dedicated destination concierges on board each of our ships whose focus is to create branded and segmented tours targeted to our higher-value guests, and this is beginning to generate incremental revenue.
Our focus on technology has allowed us to expand our bandwidth while reducing cost and increasing our revenue.
Additionally in 2014, Oasis of the Seas, Allure of the Seas, and Quantum of the Seas will lead the industry with high-speed satellite-delivered broadband service on their Caribbean sailing, commencing later this year.
When we look at our onboard revenue by key revenue stream, source market, and product, it's really a positive new story across the board.
2013 was a very rewarding year for onboard revenue, as all of the investments into the development of our revenue streams materialized.
We feel confident about what we have built for our customers as we see the increased demand for these products and services realized.
I would like to also make a few comments regarding our distribution channels.
Our guests have their choice of booking channel, and we will continue to provide every opportunity for them to select the channel that best suits their needs.
But by far the most important channel are our trade partners.
Travel agencies continue to be the primary and most important source of sales for our ships.
The travel agent network is an efficient distribution model for our business, and we believe in the value of this channel, so we invest heavily in maintaining strong relationships with our travel partners across the world.
To accomplish this goal we have always maintained a holistic approach to our relationship through training, support, technology, integrated promotions, and marketing partnerships.
We have been consistent in our support of this channel through good times and bad, formally via Celebrity Cruises' Commitment and Royal Caribbean International's Loyal to You Always programs, and in formally through trade-friendly promotions.
We have invested significantly more year-over-year in consumer marketing, trade co-op, and trade support staff.
We provide highly trained, brand-dedicated sales representatives who serve the role of a trusted advisor to our travel partners to grow their business with us.
We also provide award-winning customer service representative call centers and online training tools.
We were pleased in December when Travel Weekly, one of the most influential travel agent publications in the United States, held their travel agent readers' Choice Awards and we received multiple honors.
Royal Caribbean International was voted best cruise line overall, best in sales and service, best domestic cruise line, best cruise line in the Caribbean, and Allure of the Sees was voted the best overall individual cruise ship.
Celebrity Cruises was voted by travel agent readers the best premium cruise line, the best cruise line in Europe; and Celebrity Reflection was awarded the best premium ship award.
Globally we are the recipient of multiple trade awards across the markets we operate in.
We believe this demonstrates the strength of our brands with our travel partners.
In the past, present, and future, our fortunes are intertwined, and we will continue to strengthen our relationship with our trade partners.
With that, I will turn the call back to Jason.
Jason Liberty - SVP, CFO
Thank you, Michael.
As a quick correction to one of my previous statements, the Caribbean will represent 46% of our capacity in 2014.
Taking into account all we have just told you, I would now like to take you through our guidance for 2014.
If you turn to slide 6 you will see our initial guidance for next year -- for this year.
Because we expect to close soon on the sale of Pullmantur's non-core businesses, I have excluded these businesses from the guidance metric.
Thus, all our guidance metrics are on an apples-to-apples comparison.
Net yields are expected to increase between 2% and 3% for the full year.
We expect yields to be slightly down in the Caribbean, but we expect to more than offset this with double-digit yield improvement in Europe and further yield improvements in Asia-Pacific and Alaska.
In July we communicated that we expected our net cruise cost excluding fuel for 2014 to be better than flat.
We remain committed to this target in 2014 despite inflationary pressures, rising insurance costs, as well as continued investment in our product offering and marketing.
We have included $944 million of fuel expense for the year, and we are 55% hedged.
Net of our hedges, a 10% change in fuel prices equates to about $41 million for the year.
At today's prices the impact from our swaps is $57 million lower than it was in 2013.
Based on current fuel prices and current exchange rates, we expect earnings per share to be between $3.20 and $3.40 for the year.
On slide 7, we have recapped our guidance for the first quarter.
Net yields are expected to be approximately flat.
The first quarter of 2013 is a difficult comparable as yields were the highest since the turn-of-the-century millennial cruises in 2000.
We also didn't start to feel the effects of the negative industry publicity until after the first quarter.
Net cruise costs including fuel are expected to increase 2% to 3%, driven mainly by the timing of some maintenance costs and the full-year effect of product enhancements that were implemented after Q1 of 2013.
Fuel expense is expected to be $242 million for the quarter, and we expect adjusted earnings per share to be between $0.20 and $0.30 for the quarter.
With that I will ask our operator, Holly, to open the call for a question-and-answer session.
Holly?
Operator
(Operator Instructions) Greg Badishkanian, Citigroup.
Greg Badishkanian - Analyst
Great, thank you.
Just a few questions just on the initial WAVE season, how that is going.
So, last year it was a phenomenally strong WAVE.
I think your bookings were up like 20% during January.
You mentioned that this year it is typical.
So how should we think about year-over-year bookings this January?
And then I know comparisons get a lot easier throughout the year.
When do they get particularly easy?
Jason Liberty - SVP, CFO
Hi, Greg.
This is Jason.
I think in describing the typical WAVE, it's really kind of how it's played out over the past several years.
It is not -- I would not describe it to be as strong as it was in 2012, but it's not far off those levels.
Greg Badishkanian - Analyst
2013?
Jason Liberty - SVP, CFO
I'm sorry, 2013, I'm sorry, for 2013.
Then as it relates to -- I think the comparable really becomes easier going into the second quarter.
But all the negative industry media really leaked throughout the year, but really didn't take effect until the second quarter in terms of our yields.
Greg Badishkanian - Analyst
Okay.
That's very helpful.
Then the cold weather, I know it hurt you initially.
Does it end up helping, just because people are cooped in and would like to take a cruise?
When do you think that starts helping?
Adam Goldstein - President, CEO
Hi, Greg; it's Adam.
Obviously, we are continuing to root for cold weather, and we're seeing what is more or less an endless stretch of it.
And our general sense, based on history, is that that should be relatively helpful to us.
But as Jason I believe mentioned earlier in his comments, the weather was so nasty that it actually affected the first week of the WAVE in a negative way.
But it still stands to reason that if this cold snap goes on and on and on, people will eventually be more inclined to have something on the books in a warmer climate than what they are experiencing at home.
Greg Badishkanian - Analyst
That's great.
Thank you very much.
Operator
Harry Curtis, Nomura Securities.
Harry Curtis - Analyst
Good morning.
I had two quick questions.
The first question is that in 2013 your net cruise cost were up 1.8%, and you've guided for relatively flat for this year.
Can you give us a sense of where you are actually seeing the savings?
Jason Liberty - SVP, CFO
Hi, Harry; this is Jason.
The saving efforts that we have put forth, we have described them as -- they are not 10 things, they are really 1,000 little things.
A lot of it has been centered around back office, global restructuring efforts, but also a series of benchmarking efforts we did on the ships, more things that really do not affect the customer experience but where we saw opportunities for savings.
So I wish I could say it's three things, but it's really a collective effort of our management teams in the organization to [define same].
Harry Curtis - Analyst
But it seems like you're in the early innings.
How long is this process likely to go on?
At some of the competitor brands, these cost savings can be realized over multiple years.
Jason Liberty - SVP, CFO
I want to describe it as we're in the early innings.
I think that we look at this as a journey.
As we identify other profitability opportunities, we're certainly realizing them.
But additionally, I think what we are looking to do is, as we grow, to ensure we realize scale going forward.
Harry Curtis - Analyst
Okay.
Then quickly moving to the balance sheet, it is possible that your leverage ratio net of cash could be down to roughly the low 3s multiple by the end of this year.
What is your target?
And once you are there, what do you plan to do with your free cash?
Jason Liberty - SVP, CFO
I think in terms of (inaudible) our net debt to EBITDA numbers, I think there are some components of the commitments that factor in there.
But our goal is to really get to investment grade of 3.75 times cash flow.
And I think as cash becomes available, that then kind of drives to be a Board decision on what is the best way to allocate capital.
Richard Fain - Chairman, CEO
Yes, and I will just add a comment on that.
I think we have shown -- we recently increased the dividend rate.
I think we are feeling more comfortable that we are moving quickly towards investment grade.
The objective is not to continue to make that an A-rated company or anything like that.
So I think we have the opportunity, given the very high cash flow from our business, to also use that money to give back to shareholders.
Harry Curtis - Analyst
Okay.
Has the Board touched on the topic of share repurchase?
Richard Fain - Chairman, CEO
Of course, we look at all those kinds of things and the Board has talked about it.
But I think we don't announce anything till we have actually made a decision, and we have announced the decisions we've made to date.
Harry Curtis - Analyst
Okay.
Thank you very much, guys.
Operator
Felicia Hendrix, Barclays.
Felicia Hendrix - Analyst
Hi, good morning.
Regarding your market overview, I was just wondering if you could give us a more color about the strength you are seeing in Europe and Asia, and actually especially Europe.
Is that across all of your European businesses?
Is it mainly US source?
Just wondering if you could parse through that for us?
Michael Bayley - President, CEO
Hi, Felicia; it's Michael.
Are you referring to Europe as a source market or Europe as a destination?
Felicia Hendrix - Analyst
Well, that is what I am asking you, is you have said that you seen strength in your European business.
So I was wondering if you could give us some more granular color behind that.
Michael Bayley - President, CEO
Yes, I think that our European products and brands are seeing strong demand from the North American market, which is very positive.
I think a part of that is because of the stability we are seeing with the air costs, and a lot of the programs that we initiated in 2013 with our ChoiceAir program, which is a way of better positioning air earlier on in the transaction with our customers, which allows them to purchase the package at an earlier period.
So I think we are seeing good demand from North America for European products.
Out of the European market, again I think we are seeing very good overall demand coming in from the European markets for our various brands and products.
So I think it is a good news story overall for Europe.
Part of it obviously is capacity, because capacity is down for the industry and somewhat for the brand.
So it is a combination of these different factors I think all coming into play.
But overall, it is a very positive story.
Felicia Hendrix - Analyst
Okay.
That's helpful.
Thank you.
Jason, can you help us out as we think about our models going forward?
Obviously our own models aren't going to be apples-to-apples, so are you going to provide us with some pro-formas for net yields and costs?
Or is there some kind of rule of thumb that we can use?
Jason Liberty - SVP, CFO
Sure.
Are you talking more in terms of with or without --
Felicia Hendrix - Analyst
Because our models are going to -- we have the historicals which are going to include Pullmantur, and now we are going to be growing off of non, you know.
Jason Liberty - SVP, CFO
If you actually look, I think it is on the last couple pages of the press release, we actually break down our business with and without the non-core business of Pullmantur.
Felicia Hendrix - Analyst
Yes, that was for this past quarter.
But are you going to give us pro-formas for other quarters so we know how to model throughout 2014?
Jason Liberty - SVP, CFO
Yes, we will.
Felicia Hendrix - Analyst
And that will be in your Q?
Jason Liberty - SVP, CFO
That will be in the K.
Felicia Hendrix - Analyst
In the K?
Okay.
Oh, in the K, of course.
Sorry.
Okay, thank you.
Operator
Tim Conder, Wells Fargo Securities.
Tim Conder - Analyst
Thank you.
I had a similar question on Europe and Asia, and to follow on Felicia's, if you could just fill (technical difficulty) on Asia, how that is picking up.
In the past you have cited the ongoing issues between Japan and China that are affecting that area.
But if you could just give us a little more color, where you are seeing that strength from and what is turning there.
And then late bookings, particularly could you delve a little bit more into what is going on here from the US source passengers for the Caribbean here on the late booking?
And then finally, net yields.
What are your expectations, Jason, that are built into 2014 guidance for the onboard component of net yields?
Adam Goldstein - President, CEO
Hey, Tim, it's Adam.
First of all, on Asia, to complement what Michael was saying about Europe, so when we figure out Asia we are talking about really the whole Asia through Australia area.
I believe Jason mentioned earlier that it is about 12% of our capacity in total for that whole region, so it is obviously still a relatively small but increasingly meaningful portion of what we do.
We are generally pleased with how things went last year and with the outlook for this year for the Asia-Pacific region.
Clearly the institution of a second Voyager class ship for the Royal Caribbean brand in China went well in 2013.
It was received well, as Voyager of the Seas had been before it.
I am talking about Mariner of the Seas.
So the products and services that we are delivering to that market, which is clearly in its infancy, seem to go in the right direction.
There is still a lot of research and development involved in that effort.
And then on the Australian side of the equation, which is where most of the ships are at the moment in the Southern summer, it is a robust market.
Notwithstanding that quite a lot of capacity has gone there and the Australian dollar has been weaker of late, it is still a very solid cruise market for our brand.
So when you put the two together, Asia and Australia, we are pleased with the outlook.
But we have a lot of work to do.
And as you mentioned, the Japan/China dispute is still a wildcard that we are having to work our way around.
We wish we could know for sure that we could deliver all the Japanese ports on the itineraries as we intend them.
We weren't able to do that last year, and at the moment we are not planning on being able to do them this year.
But we are certainly open to a positive trend in that relationship.
Tim Conder - Analyst
Okay.
Adam Goldstein - President, CEO
I think you also were asking about later bookings in the US.
Obviously in the fourth quarter we were generally pleased with late bookings, and that helped us to exceed our yield guidance for the quarter fairly substantially.
A good amount of those late bookings actually were for European and Asian products; it wasn't just what was going on in the US and the Caribbean.
And given that we are in the beginning of the WAVE period and the beginning of the first quarter, we can't really say -- by definition -- what the late bookings will be for Q1.
But we are certainly marketing to encourage them wherever we need them.
Tim Conder - Analyst
Okay.
Jason Liberty - SVP, CFO
Tim, your question on onboard, it is actually estimated to be very similar to our overall yield guidance of approximately 2% to 3%.
Tim Conder - Analyst
Okay, great.
And Brian, congratulations.
Enjoy the increased amount of golf.
Brian Rice - Vice Chairman
Thanks, Tim.
Richard Fain - Chairman, CEO
Now, Tim, don't encourage him.
Operator
Steven Kent, Goldman Sachs.
Steven Kent - Analyst
Hi, good morning.
A couple things.
Could you be a little bit more specific on the expense reductions?
You said that there were dozens or hundreds of them; but maybe you could at least bucket them into where you are seeing the opportunities, so that we can understand them better and have a better sense for how long they could go on for and how much more opportunity.
And then I seem to remember that earlier this year, earlier in 2013 you did talk about some industry discounting and promotional items.
Is that happening to the same degree industrywide so far in the fourth quarter and in the WAVE season?
Jason Liberty - SVP, CFO
Steve, this is Jason.
I will take the cost one.
Let's try to bucket it a little bit more.
I think the big chunk of it comes from our global restructuring, and going market by market and looking at what it is costing for us to acquire a guest relative to what we are getting on a revenue perspective, and rationalizing that.
So there was a lot of savings that happened there, and that had a lot of back-office elements to it.
There was also a lot of action -- you are looking at, on the back office side, how are we doing versus -- on a scale perspective relative to prior periods and rightsizing some of that.
And then there were just overall I would say more back-of-the-ship opportunities that we saw, not touching at all maintenance or anything that had to do with the safety and security of the vessel, and finding opportunities through benchmarking.
Adam Goldstein - President, CEO
Steve, on the -- as it relates to promotion in the industry, I think it has been a regular feature of these conversations over the years that a fundamental part of the revenue management equation is putting the right promotions in the market at the right time.
It is a very dynamic industry environment, and I would say that discounting is definitely a part of the equation right now in the WAVE marketplace.
I think all of the industry is working very hard to get load on the ships at desirable rates.
I don't think there is anything really very different fundamentally from what we have encountered in the past or would expect to in the future.
I mentioned before in my comments that we have just invested significantly in our ability to do our promotions in the most effective manner possible.
That is because we know that promotions and discounts will be a regular feature of the landscape; and our goal, like with anything else, is to do that as well as we possibly can.
So there is not going to be -- there isn't at the moment a set of prices and that's it's is nothing to talk about.
The travel agency community does a great job for us in navigating the promotional offers that we put out there for the benefit of guest, and all of that contributes to the positive yield guidance that we have given.
Steven Kent - Analyst
So then you would say that it hasn't improved but it hasn't gotten worse?
Just regular normal business is the way you'd describe it, on the discounting and promotions?
Adam Goldstein - President, CEO
I would say it is generally at a level that we would consider to be normal business as usual, which means that it is a very competitive affair.
Steven Kent - Analyst
Okay, thank you.
Operator
Robin Farley, UBS.
Robin Farley - Analyst
Great, thanks; a couple questions.
First is, with Q1 prices on the books up and load factor flat, it sounds like you are expecting that close-in Caribbean pricing to be down.
So just I wonder if you could give us a little more color on how you're comfortable that that is just a Q1 issue and not a Q2 and beyond issue.
And then I don't know if you can comment a little bit on Alaska, which I don't think you broke out specifically.
Just from what we are hearing, I don't know if there is anything other than the polar vortex that is making Alaska not as popular for bookings right now, but if have any comments on that.
Adam Goldstein - President, CEO
Robin, this is Adam.
I will address the Caribbean question and then Michael can take the Alaska question.
We are at a point in our first quarter where obviously the long lead-time business is what we have the books; and now the question that remains is what happens with the short-term bookings.
And while they could be robust -- they were in the fourth quarter -- that is not anything that we can count on.
So we obviously make our most educated projection that we can, in a rational way, as it seems to all of us who are engaged in the revenue management effort, to project out what our first-quarter guidance will be.
Now, you have seen from the earlier commentary and from the slides that we showed during this presentation that our overall load factor position for the year is strong.
And we are going to continue to do everything that we can so that it remains that way and so that we are relatively less dependent on late-booking business, and to the extent that we have it we can continue to generate high APDs from it.
So structurally our load factor situation is positive and we would expect -- so we built that into our forecasting for Qs 2, 3, and 4. For Q1 we will just have to see how it pans out over the next few months, as we do every time we have one of these calls.
Michael Bayley - President, CEO
Hi, Robin.
It's Michael.
I will just make a couple of comments about Alaska.
Obviously, Alaska is almost like a mini-Europe in terms of its importance.
It is about 5% of our total capacity.
It's certainly as you know entering a high-yielding period.
And it's -- we feel pretty good about how Alaska is booking.
Obviously it has its puts and takes, but our capacity overall is pretty much the same as it was in 2013 and our products seem to be selling at a relatively good pace.
So I think we are fairly confident with how Alaska is shaping up.
Robin Farley - Analyst
Okay, great.
Then can you also just lastly give a little bit of color on maybe some of the areas in onboard revenues that are driving -- that are the big drivers of the 8% increase?
Michael Bayley - President, CEO
Yes.
I think I said in my comments that when you look at onboard revenue, either by revenue stream or source market or product or brand, the story is universally good.
We are seeing strength across every single revenue stream and from every single market.
So the entire story is positive.
There is just a general uplift that we are seeing in our onboard revenue across all of our brands.
There is no one particular revenue stream that is really outshining the rest.
Obviously, different revenue streams have different relative scale; so beverage, gaming, retail, etc., and shore excursions make up a significant portion of our revenue, and they are all really doing quite well.
Robin Farley - Analyst
Okay, great.
Thank you.
Michael Bayley - President, CEO
You're welcome.
Operator
Andrea Ferraz, Morgan Stanley.
Andrea Ferraz - Analyst
Hi, good morning.
I have two questions, please.
My first question is that, if I look at the net yields that you have delivered in each of the last five quarters, you have beaten every time.
So I was wondering from your point of view what has driven this.
Has it been generally the stronger late bookings or onboards?
And where could we be surprised looking forward?
And then if you could give us an update on your estimate for the impact of the ECA cost coming in next year?
I think last year in the 10-K you said it would be $65 million to $70 million, but I was wondering if you had done anything on the technology side to drive an improvement there.
Thanks.
Adam Goldstein - President, CEO
Hi, this is Adam.
As it relates to your first question on our yield performance over recent quarters, the factors that you mentioned have absolutely been relevant.
First of all, as you know, we don't know what the onboard revenue will be until it happens.
And based on the commentary that Michael has provided here today, you know that onboard revenue has been continually robust throughout the period that you referenced; and so that has definitely contributed on a regular basis to any beats that we've had on our revenue guidance.
And generally speaking over the last five quarters we have been pleased with the quality and the quantity of the late business that we have taken on.
As I just mentioned before, we can't count on that happening in the future.
But in fact, this is what we have experienced over the recent year or so.
Andrea Ferraz - Analyst
Okay, and on the ECA costs?
Jason Liberty - SVP, CFO
On the ECA costs relative to 2014, it is pretty modest and we will have it quantified in our 10-K filing.
But the larger impact will really affect more 2015.
Andrea Ferraz - Analyst
Yes, sorry; that is what I was referring to.
Jason Liberty - SVP, CFO
We have a series of efforts.
I am not sure, Adam, you might want to comment on the efforts we are doing on the scrubber technology so that we address that.
Adam Goldstein - President, CEO
Well, I would just say that as we sit here in early 2014 we have been very conscious of the tougher level of sulphur emission coming in, in the ECAs, at the beginning of next year.
So we have been engaged in a whole variety of initiatives, including scrubbers -- or as we would call them, advanced emissions purification equipment -- to mitigate particularly the burden that will come into effect next year.
So as Jason said we will quantify that more precisely in the 10-K, at least for 2014 at this point.
It is a huge effort taking place in our Company to come up with the best mitigation technique that we can, and part of that is seeing where the AEP or scrubber equipment can get us.
Andrea Ferraz - Analyst
Great, thanks.
Operator
Richard Carter, Deutsche Bank.
Richard Carter - Analyst
Good morning.
A couple of questions from me.
Firstly, could you just talk through what is driving the year on year fall in net interest costs?
Should we expect this trend to continue into 2015?
Then secondly, Richard, you talked about 2014 net yield guidance obviously being impacted from what you had to go through in 2013.
Is it possible to give us some flavor or some run rate in terms of where you think yield guidance would be if you were looking at it currently?
So if we were to take out the weak 2013, are we looking at several hundred basis points above where you set the guidance?
Jason Liberty - SVP, CFO
Richard, just taking the first piece on the interest, our interest expense is expected to be down somewhere between $50 million and $60 million for the year.
The main drivers of that is over the past year and a half we have done a series of refinancings, almost $2 billion worth.
And our weighted average cost of debt on those overall has really dropped by about 55 basis points; as well as we have about $500 million less in debt.
So the combination of those things is what is driving the lower negative carry.
Richard Fain - Chairman, CEO
With respect to how much better 2014 could have been if we hadn't had the impact of all the events in 2013, I am afraid that our systems are really geared to and quite sophisticated in measuring out the demand levels that do exist.
It is very hard to measure what would it have been under a hypothetical scenario.
So I don't think we have an estimate of actually how much better it could have been.
Obviously, we think it would have been better.
But our focus is on, given where we are today, what do we expect to happen?
And this takes all that into account.
Richard Carter - Analyst
Okay.
Then just finally, I think historically you have talked about new capacity pricing a 20% premium to this net yield average.
Is that a reasonable assumption for the new capacity coming in, in 2015, that sort of assumption?
Or we should be expecting it to be a higher premium?
Richard Fain - Chairman, CEO
Yes, I think we actually have said that historically we were -- our newer ships had a 25% premium to our older vessels.
Now, you would have to divide that out because much of our existing fleet is in fact newer ships today.
But yes, we would assume that the newer vessels would continue to attract a nice premium.
And the forward bookings for Quantum certainly reinforce that.
Richard Carter - Analyst
Okay, thank you.
Operator
Assia Georgieva, Infinity Research.
Assia Georgieva - Analyst
Good morning.
A couple of questions.
First of all, in terms of European pricing and demand, how much of that is Europe sourced at this early point?
I think in the past we have noted that the European passengers tend to book much closer in.
So I wondered if you are seeing primarily North American source trends, or some indication of how the European source passenger is behaving.
Michael Bayley - President, CEO
Hi, Assia; it's Michael.
I think we're certainly seeing very strong demand out of the North American market for the European products.
Out of the European market, we are seeing good demand.
We create our own track of expectation of booking, volume, rate out of every individual market both in Europe and North America for each of the brands.
And I think we have been, again, pleased with what we are seeing out of North America.
And from the European markets, we're generally meeting our expectations.
Assia Georgieva - Analyst
Okay; thank you, Michael.
Yes.
I appreciate that.
Maybe, Adam, you can help me with this.
Given the large capacity increase industrywide for the Caribbean in the summer, it would seem wise I guess at this early point in WAVE to assume possibly some future discounting.
Is that something that you are already modeling in?
Adam Goldstein - President, CEO
When I referred to the current situation earlier as a competitive affair, it certainly encompassed the Caribbean environment for Q2 and Q3.
It is not just that we expect that that will happen; this is what is happening.
These expectations are baked into our overall guidance for the year, and we will fight hard for the business.
Assia Georgieva - Analyst
Okay.
Thank you.
Thank you, Adam.
Jason Liberty - SVP, CFO
Holly, we have time for one more question.
Operator
James Hardiman, Longbow Research.
James Hardiman - Analyst
Morning.
Thanks for taking my call.
I hopped on a little bit late; if you already answered these, I apologize.
Just I guess real quick, Explorer of the Seas, sounds like there were some issues; needed to come back to port.
Doesn't seem like a real big deal.
Do you think that will end up being at all material to your first quarter?
Adam Goldstein - President, CEO
James, hi.
It's Adam.
Thank you for saving the best for last.
James Hardiman - Analyst
Had to do it.
Adam Goldstein - President, CEO
This has been a difficult situation and both a considerable and a rare outbreak of what appears to be norovirus, because that is something that actually takes a little bit of time to confirm.
But most likely that is what is happening onboard Explorer of the Seas.
Very happy to say that after the initial spike in illnesses, which happened on the 23rd, two days into the cruise, we have sequentially experienced far lesser numbers of guests being ill.
But nevertheless, it is a serious situation.
We feel very badly for the guests who became ill on the ship.
We are doing lots and lots of things for them, which includes compensation for the ports that they missed.
But to your question, we don't expect that the impact of this event will be significant or meaningful for the Company or its results.
But it is obviously meaningful to the customers who have experienced illness, and so we are doing everything we can do to make the ship as clean as possible and the rest of the cruise as enjoyable as we can.
James Hardiman - Analyst
Very helpful.
That seems about right.
I guess along those lines, though, if we circle back to your 2% to 3% yield guidance for 2014, and just the fact that the point that you started the call out, which is that you had all these terrible events and media; and yet you were still able to reach your guidance.
I guess big picture, how do you think about your guidance as you are putting it together with respect to these exogenous events?
Do you just assume that nothing is going to happen?
Or is there some base level of the unexpected that you build into your model, over and above just the base case?
Which is that -- what everybody I think is hoping for -- that you have a very uneventful WAVE season and beyond.
How should we think about that?
Richard Fain - Chairman, CEO
Yes, I think it is obviously a challenge for any company doing this; and I don't think that we are any different than anyone else.
We try and provide a balance, so I don't think it is reasonable to assume that nothing goes wrong in a year.
I remember back to the time when having to diverge a ship because of a hurricane was the big kind of variable there.
So we try and give some thought to it.
But of course, when you are talking about the kind of events that we have looked to in the last couple years, those are outside of anybody's ability to even remotely predict or incorporate.
So we try and be realistic, but we also don't try and imagine Black Swan type things happening.
James Hardiman - Analyst
Got it.
Thanks, guys, and good luck this WAVE season.
Jason Liberty - SVP, CFO
Thank you for your assistance, Holly, with the call today and we thank all of you for your participation and interest in the Company.
Liz will be available for any follow-ups you might have.
And with that, I wish you all a great day.
Operator
Once again we would like to thank you for your participation in today's Royal Caribbean Cruises Limited 2013 fourth-quarter earnings conference call.
You may now disconnect.